Well this thread has exploded in the last 24 hours, mainly due to ranting, but in arguing over whether NR should or should not run the stations, an important point seems to have been overlooked.
As I mentioned a few pages back, the revenue NR makes from retail is not a significant proportion of its overall revenue. But what will change drastically is that the number of interfaces it has to manage will go up.
NR can do what it likes in the stations it manages. It can close off areas, evict tenants, reconfigure the layout, introduce emergency measures like it did at London Bridge. It doesn't need to wait, consult, or pay millions of pounds in compensation to do this.
That will change. It will be dealing with private consortia who will (if, as I say, the point of this is to raise a significant amount of capital to pay those £1.8 billion of added CP5 costs) have invested serious money and will prioritise protecting their investment above all else.
What you will therefore have is an interface between two parties with quite different priorities: a not for profit state owned company and a for-profit station operating company, which is owned and equity financed by various for-profit companies (and also debt financed by various lenders).
When something goers wrong, NR's priority (however poorly executed at times) is to keep the trains running. The station operator's will be to ensure that they don't suffer financial detriment (I don't mean wiping out their profits for the year, I just mean losing some cash flow that they'd otherwise have had). That may lead to them pulling in different, or opposite, directions. You will recall that Railtrack faced this dilemma: as its chief executive Gerald Corbett admitted, from time to time they refused to act in the best interests of the railway, because they didn't want to lose money in the process.
Also, because the agreements to buy/concession these stations and operate them will be governed by legally binding contracts, the scope for common sense solutions and negotiation between NR and the station operators will be limited. Each side could end up talking through their lawyers, which is very expensive and slow. That goes back to the increased overheads I mentioned, which will be passed back to the taxpayer or farepayer.
We don't know whether these deals will be largely property-focused and result in just the retail areas being taken over, or whether they'll cover the entire stations. But if it's the latter, then this will be about much more than some property developers renting out shop space. They will be running the railway, or a part of it, and they'll expect to be protected from all the risks that come with that by being paid guaranteed fees for doing so, on top of the retail revenue. They may be arrangements to share retail revenue with NR, possibly, but of course the less profitable the assets on offer, the less money in upfront sale/concession fees NR gets - and it is probably trying to raise as much money as possible.
If one looks at the Balance Sheet, it becomes evident that what some people call the Debt, is in fact the Capital. One does not say that Shell or M and S has a huge debt, just because the shareholders have shares and would be owed the money in the event of a wind up..
Here's the link.
http://www.networkrail.co.uk/Annual_report_archive.aspx
Page 91 gives the figures as the 'pure railway' being worth £56 billion, the basis for valuation being what it is considered a third party would pay for it.
The borrowings ('the Debt' quoted by newspapers) are £35 billion. The differences after odds and sods (actually very large amounts on both sides of the balance sheet, such as financial speculation that should be brought to a halt) shews that we as taxpayers are sitting on a very valuable asset.
I always thought the sell-off of the hotels was daft, and I think that about the station assets. perhaps they could be just franchised, why not?
You appear to be confusing debt and equity. What shareholders have is equity, and in the event of a wind-up they would only get what was left after the debt holders had been paid off, which depending on the liquidated value of assets (which is less than the book value) vs the debt might not be much. Yes, NR does have debt, debt is one form of capital and equity is the other. And yes, you do talk about Shell or M&S having a huge debt if investors decide they've borrowed too much. Financial analysts are always accusing this or that company of having too much debt!
Comparing debt to how much shares are worth doesn't mean much in terms of a company's sustainability, because share prices don't pay the bills. in fact they don't pay anyone except those who sell them on. NR of course has no shares. What matters is the earnings potential (which is not the same as revenue, you have to strip out operating costs and various other things first).
Of course NR's assets are worth more than its debt - but that's not the point, nobody is talking about liquidating its assets and the UK railway will never, ever bring in enough money to cover all its costs. The point is, is the debt sustainable i.e. can you afford to keep paying the interest? You could argue that it is as long as government is happy for it to keep growing and for the debt repayments to grow with it. But I suspect at some point someone will say enough. In which case you can look at other ways of financing the railway like the asset charging model used by Chiltern Railways to finance their Evergreen projects. It comes down to accounting, ultimately, and whether politicians want to see a railway supported by public borrowing.
